Square Inc. is making its smartphone magnetic stripe card reader available through Apple Inc.’s retail stores and website, but its rivals got there first. Square has distributed its smartphone card reader primarily through the mail to people who have downloaded its payment application. The company, headed by Twitter Inc. co-founder Jack Dorsey, has pitched its product as a simpler way to begin accepting card payments than conventional payment industry channels. Though the deal would seem to grant Square further legitimacy in the payments space, it is not a breakthrough for the startup, said Gil Luria, a research analyst at Wedbush Securities Inc., a Los Angeles equity research firm.

Big banks may have the deep pockets to subsidize financial literacy programs, but it’s the smaller banks, with their deep ties to communities, that may actually benefit the most from sponsoring such instruction. At the website of one such community bank, Salem Five Cents Savings Bank, in Salem, Mass., children can check balances and access an educational section that the bank encourages them to use with their parents. It includes 12 online lessons that teach financial literacy on topics such as checking accounts, taxes, mortgages, smart shopping and credit cards. The bank said the number of its children’s accounts, called the Gold Star Saver account, doubled to 2,000 last year from 2009, and these now have more than $1 million in deposits.

American Express Co. is hitting the streets in Eugene, Ore., to promote Serve, its digital wallet for those consumers who are turned off by the elite branding of its main product line. To succeed, Serve must win over consumers who already have numerous mainstream and alternative payment products to pick from. Serve’s benefit to merchants is clear: Since it is tied to a prepaid card, Serve costs them less than Amex credit cards do. The benefit is also clear to Amex, which is aiming to attract a wider audience.

As described in Payment Services Hubs: The Bank’s Perspective over 40% of payment services hub projects are at large financial institutions with assets exceeding $100 billion, and nearly 56% are in Western and Northern Europe, according to data provided by nine leading PSH vendors (see Featured Celent Chart). However, banks of all sizes and from all geographies are starting to consider how to adopt PSH concepts in their payments businesses. In my research I found that, to understand why banks start payment services hub projects, it is helpful to distinguish between the true reasons and how the banks justify them. The fundamental drivers include the presence of a burning platform or a large related programme, while the benefits case is usually built around cost reduction, revenue retention and enhancement, risk and liquidity management, and increased agility.

Two new studies suggest that checking-account customers continue to be confused by banks’ debit-card overdraft policies, despite Federal Reserve rules imposed last summer to protect card users from unexpected charges for overdrafts on point-of-sale transactions. The new rules bar banks from imposing fees on such overdrafts unless an account-holder agrees in advance to the banks’ terms. With typical fees of $35 per overdraft, banks have made billions of dollars a year by authorizing debit-card purchases even though there are insufficient funds in customers’ accounts. In a report released Tuesday, the Center for Responsible Lending said that many banks “use scare tactics and other misleading practices to persuade consumers to opt into high-cost overdraft programs for debit card purchases.”

Consumers continue to spend billions on overdraft fees, despite a Federal Reserve regulation that requires banks to obtain customers’ permission before signing them up for overdraft-protection programs, consumer advocates say. Consumers will spend an estimated $38.5 billion in overdraft penalty fees in 2011, up from $18.6 billion in 2000, according to a study out today by the Pew Health Group, the consumer-product safety arm of the Pew Charitable Trusts. Part of the problem is that most banks fail to adequately disclose the cost of different overdraft options, Pew said. For example, the median overdraft-protection fee is $35, vs. $10 to transfer funds from a customer’s savings account to cover the overdraft, the study said

There’s online banking, self-checkout at grocery stores and self-check-in at airports. But President Obama thinks that the federal government is mostly checked out when it comes to customer-friendly technology. Senior administration officials said the president is expected to sign an executive order Wednesday requiring federal agencies to develop new, reliable online services that might one day replicate the success of the Internal Revenue Service’s electronic tax-filing program. A decade ago, about 70 percent of Americans filed taxes through the mail and 30 percent filed online.